This increase from the RBA marks 350 basis points’ worth of tightening to date, pushing the cash rate to its highest level since May 2012.
AMP Chief Economist Shane Oliver noted the 0.25% increase in the cash rate will add another $95 to the monthly payment on a $600,000 mortgage.
“This will take the total increase in monthly payments since April 2022 to $1,200 a month or nearly $14,500 a year,” Dr Oliver said.
PropTrack Senior Economist Eleanor Creagh said recent communications from the Reserve Bank surrounding future cash rate increases have been hawkish, despite recent wage price data coming in below expectations.
“However, with the board remaining committed to overcoming the challenge of persistently high inflation, the cash rate has been further increased by 25 basis points as opposed to reverting to the 50 basis point hike that was discussed at last month’s board meeting,” Ms Creagh said.
The expectation now remains that the cash rate is close to its peak, with a chorus of economists and analysts echoing this view.
“We’re closer to the peak in interest rate tightening than not and if the Reserve Bank hits pause on its tightening cycle later this year, home prices will likely begin to stabilise as some of the uncertainty buyers have experienced with respect to borrowing capacities and mortgage servicing costs reduces," Ms Creagh said.
CommBank Head of Australian Economics Gareth Aird echoed this sentiment, noting recent data indicates that the RBA may now be tightening policy into an economy that is already showing sufficient signs of softening.
“That is our assessment. But the Board won’t arrive at that conclusion yet," Mr Aird said.
This is indeed the case, with Dr Philip Lowe noting the Board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary.
"In assessing when and how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market," Dr Lowe said.
"The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that."
CommBank economists anticipate the RBA to deliver 50 basis points of cash rate cuts in the fourth quarter of 2023, while Westpac economists forecast seven cash rate cuts throughout 2024 and 2025.
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